Description: A discussion of setting margins for financial reporting of insurance contract liabilities, with a focus on the cost - of - capital approach.

Description: Since insurance contract liabilities are uncertain in amount, an estimate is required. And under most accounting frameworks, the estimate of an uncertain amount should contain some sort of margin for uncertainty. This paper provides a mathematical connection between that margin and the market price of risk as measured by the cost of capital. The connection makes use of the theory of utility and an exponential utility curve.

Description: This article is an update, as of March 2019, on Financial Reporting Section sponsored projects in process and those recently completed.